Trade Policy Regime Research Articles

MNEs and the Global Integration of Thailand's Processed Food Exports: A Firm-Level Study

This paper presents the findings of a firm-level case study examining the role of multinational enterprises (MNEs) in processed food exports from Thailand. The discussion covers both FDI (foreign direct investment) and non-FDI channels of MNE involvement in the export of four major items, namely, canned pineapple, canned tuna, processed chicken, and processed shrimp. The findings suggest that MNEs play a vital role in the expansion of processed food exports from Thailand. MNE involvement begins with the establishment of joint ventures with Thai firms (FDI channel). Then, other local firms engage in export-oriented production and enhance their competitiveness through technology spillover. As the industry gains maturity, links with MNE buyers begin to play a far more important role than the FDI channel. The highly liberal trade and investment policy regime of Thailand, as well as the absorptive capability of local firms and the presence of the Thai MNE, CP group, are important elements of the enabling environment that allows these Thai exporting firms to gain maximum benefits from MNE involvement. The Thai experience demonstrates that the conventional approach of focusing on FDI as the sole link between MNEs and domestic manufacturing tends to overlook the significant role of MNEs in the export performance of the host countries' diffused-technology industries such as food processing.

Good Governance at the Supranational Scale: Globalizing Administrative Law

This Article examines the tension between the demonstrable need for structured international cooperation in a world of interdependence and the political strain that arises whenever policymaking authority is lodged in global institutions. It argues that the tools of administrative law, which have been used to legitimate regulatory decisionmaking in the domestic context, should be deployed more systematically when policymaking is undertaken at the international level. While acknowledging the inevitable lack of democratic underpinnings for supranational governance, this Article highlights a series of other bases for legitimacy: expertise and the ability to promote social welfare; the order and stability provided by the rule of law; checks and balances; structured deliberation; and, most notably, the institutional design of the policymaking process as structured by principles and practices of administrative law. In developing the logic for procedural legitimacy as a foundation for good governance at the supranational scale, this Article advances a taxonomy of possible global administrative law tools. It then evaluates against this template of good governance procedures some existing decisionmaking procedures in the international trade, public health, and environmental policy regimes. The core conclusion is this: Even if supranational governance is limited and hampered by divergent traditions, cultures, and political preferences, developing a baseline set of administrative law tools and practices will strengthen whatever supranational policymaking is undertaken. author. Hillhouse Professor of Environmental Law and Policy, Yale University. Thanks to Andrea Gelatt, Kaitlin Gregg, Hannah Jacobs, and Christine Kim for research assistance—and to Marge Camera for administrative support. This Article emerged from the Gilbert and Sarah Kerlin Distinguished Professor of Environmental Law Lecture at Pace Law School. Thanks for helpful comments are due to the participants in the Yale Law School faculty workshop, the Pace Law School Kerlin Lecture, the Harvard Law School International Public Governance seminar, Professor Benedict Kingsbury and the NYU Law School Global Administrative Law Conference, and Professor Sabino Cassese and the international law seminar at the University of Rome “La Sapienza.” ESTY 4/24/2006 2:09:08 PM good governance at the supranational scale 1491 article contents

Evolving dairy markets in Asia: Recent findings and implications

This paper is an overview of important findings regarding the ongoing evolution of Asian dairy markets based on a series of new economic investigations. These investigations provide systematic empirical foundations to assess Asian dairy markets with their new consumption patterns, changing industries, and trade prospects under different domestic and trade policy regimes, with four case studies (China, India, Japan, and Korea), a prospective analysis of future regional patterns of consumption, and a policy analysis of trade liberalization of Asian dairy markets. The overview distills the findings of these new investigations and integrates them in the earlier economic literature; it draws policy implications, and identifies lessons for countries outside of Asia, especially for emerging exporters in Latin America.

Liberalization, Market Power, and Productivity Growth in Indian Industry

Using firm‐level panel data we investigate whether reform of the trade and industrial policy regimes in India introduced in 1991 resulted in a reduction in market power and/or an acceleration in productivity growth, consequences that have been predicted in theory. Econometric testing of the theory for every industry group at the two‐digit level in India yielded limited evidence of acceleration in productivity growth and no evidence of a reduction in market power. This is interpreted as suggesting that in the case of Indian industry trade liberalization has not exhibited the potential often attributed to it.

Trade Policy Reforms and the Structure of Protection in Vietnam

This paper examines the current state of the trade policy regime in Vietnam against the backdrop of market-oriented policy reforms undertaken over the past one-and-a-half decades. The core of the paper is an in-depth analysis of the structure of protection, focusing on both incentives for import-competing production and the bias in the incentive structure against export production compared to import-competing production. It is found that, despite notable reform efforts, the structure of protection in Vietnam is still out of line with that of the major trading nations in the region, in terms of the level and the inter-industry dispersion of nominal and effective protection rates. There is a clear anti-export bias in the incentive structure, even though the degree of the bias has considerably declined over the years. There is no evidence to justify the existing protection structure on grounds of infant industry protection or employment generation.

Foreign direct investment and technology spillover: A cross-industry analysis of Thai manufacturing

This paper examines technology spillover from foreign direct investment (FDI) based on a cross-industry analysis of Thai manufacturing. The analysis is built around the hypothesis by Bhagwati that technology spillover is conditioned by the nature of the trade policy regime. The result, based on a two-equation model that allows for the two-way link between the foreign presence and productivity of locally owned industries, provides support for the hypothesis. A key policy implication is that liberalizing the foreign investment regime has to go hand in hand with liberalizing the trade policy regime to maximize gains from FDI technology spillover.

The Textile and Apparel Industry in Developing Countries

The textile and apparel industry is the gate of choice for most developing countries in their quest to step into industrialization. The ease of entry into this field and the abnormally high wages in developed countries have created favorable conditions for the manufacturing and the exportation of textile and apparel derived products. At the same time, this unique situation has effected a cutthroat competition among the many actors while fueling an intense protectionism in many developed countries where the export markets are found. However, paradoxically, it is the U.S. trade policies that have been the common factor in the flourishing of the textile and apparel industry in many countries and regions around the world. From Asia, this generous openness has in time reached the Caribbean region and finally Sub-Saharan Africa. The evolution of this fluid industry in developing countries is examined within the boundaries of the textile and apparel managed trade agreements. It is argued that successes in this field must come from the combined efforts of the local government's industrial and trade policies, the entrepreneurial prowess of the private sector and the flexibility and the work ethic of the labor force. From the SE Asia NICs, to the Caribbean states and the Sub-Saharan African region, the synergy created by the U.S. trade policies and the local capabilities is shown to be the major ingredient for the development of the textile and apparel sector in scores of developing countries.

Institutional determinants of Indonesia's sugar trade policy

An analysis of contemporary sugar trade policy in Indonesia highlights problems in the institutional framework for trade policy making. The institutions through which sugar trade policy is formulated entrench the interests of rent-seeking bureaucrats, import licence holders and traders to the detriment of consumers and downstream producers of processed products. Moreover, the resulting trade policy regime has problematic effects on sugarcane farmers. The structure of regulatory intervention is due less to democratic pressures than to the inclusion of vested interests in the institutions that formulate policy. Further, the lack of effective mechanisms for inter-ministerial coordination and for resolving conflicting policy preferences among ministries hinders the development of coherent trade policy and obstructs reform efforts. An institutional framework that facilitates representation of all interests affected by sugar trade policies and public scrutiny of the effects of policy intervention is likely to deliver better outcomes for consumers and producers alike.

Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?

This paper demonstrates that international ownership can mitigate the terms of trade externalities that lead large countries to set inefficiently high tariffs, and may thereby substitute for negotiated tariff liberalization in eliminating the strategic manipulation of world prices. The policy prediction is unclear, however, since international cross-ownership also introduces an internal cost-shifting externality that can drive investment-host countries to expand local market access beyond efficient levels in an effort to extract rents from foreign investors. An immediate implication is that simply making large countries “act small” or completely diversify their global investment portfolios to neutralize traditionally understood terms of trade cost-shifting motives cannot ensure efficient trade policy regimes in an environment with international investment. At the same time, a modified version of the principle of reciprocity does continue to serve as an important guide to efficiency by balancing countries' external and internal pecuniary externalities.

Adjusting to Liberalization: Tracing the Impact of the WTO on the European Textiles and Chemicals Industries

Rulings made by the World Trade Organization (WTO) dispute settlement body have, since the organization's creation in 1995, significantly advanced global economic liberalization. The response of business has been varied and far from uniformly supportive of the WTO agenda. The reason stems from the fact that adjusting to liberalization measures is easier in some industries than in others. The response is premised on the strategic alternatives available within an industry. Through examining antidumping (AD) elements of the European Union (EU) trade policy regime in the context of two European industries - chemicals and textiles - we find that both are under severe competitive pressure, due to WTO-induced market liberalization. However, the responses taken by companies within the respective industries are very different. We suggest that while WTO activity catalyzes industry evolution, the form of that adjustment is highly industry specific. In the case of textiles, the disaggregation of the industry value chain allows for a variety of product and locational adjustment strategies. In contrast, the chemicals industry is nationally based, reliant on intellectual property for competitive advantage and structurally limited in its ability to adopt a wide range of adjustment strategies. Therefore, in the absence of alternative strategy options, EU chemical companies lobby for rule harmonization in the WTO.

Trade Liberalisation and Economic Performance: Theory and Evidence for Developing Countries

The last five decades have witnessed a profound evolution of economic policy in developing countries, particularly in the case of trade strategies. Both internal, as well as external, factors have prompted the need for more outward-oriented (or liberalised) trade policy regimes. The creation of the General Agreement on Tariffs and Trade (GATT) in 1947 and the World Trade Organisation (WTO) in 1995 have been important driving forces for free trade. Since then, the major quantitative barriers to trade, i.e. tariffs and non-tariff barriers (quotas, licences and technical specifications, among other restrictions), have substantially been reduced or dismantled. Also, the progress towards more liberalised trade regimes, mainly in developing countries, has been manifested in the trade and development literature. Major studies suggest that the performance of more outward-oriented economies is superior to that of those countries pursuing more inward-looking trade practices (Greenaway and Nam, 1988; Dollar, 1992; Sachs and Warner, 1995; and Rodriguez and Rodrik, 2000). Recent developments in the international trade literature focus on the potential dynamic effects of trade liberalisation, i.e. simplification of tariff structures and elimination of non-tariff barriers, in reducing the incentives to rent seeking and in accelerating the flow of technical knowledge from the world market. Moreover, there have been important advances regarding the study of trade liberalisation and its impact on exports, imports and the balance of payments, largely neglected in the literature, often driven by supply-side considerations.

Trade Policy in Malaysia: Liberalization Process, Structure of Protection, and Reform Agenda

The purpose of this paper is to examine trade policy-making in Malaysia in the post-independence era with emphasis on factors underlying key policy shifts and to identify key elements of the unfinished reform agenda. The paper provides a historical overview of trade policy-making in Malaysia, paying attention to the underlying political economy, and undertakes a critical evaluation of the current trade and investment policy regime from a comparative regional perspective. It also examines Malaysia's changing policy posture relating to multilateral trade regional and bilateral trade negotiations.

Trade Policy Making in a Small Island Economy: The WTO Review of the Maldives

The purpose of this paper is to examine trade policy regime and trade‐related development issues in the Maldives on the basis of the Trade Policy Review Maldives 2003 of the WTO. The key theme of the paper is that, given the narrow resource base and small domestic market, openness to foreign trade and investment remains the ‘natural’ policy choice for a small developing economy like the Maldives. Since the late 1980s, the Maldivian government has made considerable progress in implementing policy reforms driven by this conviction. However, the reform process is far from complete. High import tariffs maintained predominantly on revenue considerations, a large direct role played by the public sector in foreign trade and some key sectors of the economy, lack of transparency in duty concessions and other investment incentives, failure to incorporate environmental concerns as part of the national development policy, and delays in meeting reform commitments under the WTO are among the key items of the unfinished reform agenda.

Sharing benefits of globalisation through an EU-ASEAN FTA?

In the aftermath of the stalled launch of a new WTO round in Seattle in 1999, Singapore and Japan initiated a joint study into a possible bilateral Free Trade Agreement (FTA). The resulting ‘New-Age Economic Partnership Agreement’ was signed in 2002, reduced barriers in trade and investment in goods as well as services, technical standards and public procurement. Other FTAs followed including a US-Singapore FTA in 2003. In response, other ASEAN countries initiated negotiations towards bilateral FTAs, such as Thailand with India and Malaysia with Japan etc. Moreover, China declared its intention to enter into a FTA with the ASEAN by 2012. The failure at Cancun in 2003 implies that the Doha Development Agenda will not be achieved within the time-frame set. In this environment, the question of a feasibility of an inter-regional EU-ASEAN FTA is investigated. ASEAN’s trade policy regime is opening up and the gains of further tariff elimination will be modest, because most ASEAN countries already apply low tariffs, while those of the EU on import from ASEAN are low as well – e.g. for Singapore the tariff rate is merely 1.04 per cent (trade weighted). Nevertheless, a further reduction will benefit both EU and ASEAN because a significant share of imports is intra-firm trade, with EU firms operating from ASEAN as a production platform for the EU markets. However, for an EU-ASEAN FTA to be worthwhile, it must generate benefits on issues relating to non-tariff barriers to trade, esp. technical standards, SPS and mutual recognition of testing. Further significant benefits to EU and ASEAN may be realised by advancing liberalisation of international trade in services (e.g. banking and insurance licences, air and sea transport). Reducing restrictions on foreign direct investment in selected␣service sectors is bound to enhance investment flows from the EU to ASEAN.

Ideas, Interests and Oil Prices: The Political Economy of Trade Reform During Soeharto's Indonesia

Indonesia since the late 1960s constitutes an excellent case study in the political economy of trade protection. There have been major changes in the overall policy regime, from liberalism to significant intervention, and back towards liberalism. There have been large, though declining, inter‐industry variations in effective protection. There has been a lively domestic debate, much of it dominated by non‐economists. Many actors at home and abroad have a stake in that debate. And, since the 1980s at least, trade policy interventions have been reasonably well documented and quantified. In this paper, we show how quantitative analysis may be employed to shed light on changes in the trade policy regime over time. We also examine the principal actors with an interest in, and influence over, trade policy, delineating where possible how their influence translated into the policy arena. Finally, we speculate on whether the framework developed in this paper is applicable to the very different circumstances prevailing in the post‐Soeharto era.

Market Structure and the Demand for Free Trade

We examine a heterogenous goods duopoly model, wherein governments simultaneously and noncooperatively choose whether or not to provide subsidies for their firms and then firms noncooperatively choose output levels, either sequentially or simultaneously. We find that government trade policy and market structure are interdependent. First, the trade regime alters traditional firm preferences over sequential versus simultaneous play. Second, different market structures influence governments' preferences about free trade versus subsidies. Further, if one of the firms is a potential leader, allowing for endogenous market structure generates equilibrium outcomes that sometimes reinforce, and sometimes counter, traditional results in the strategic trade literature.

Trade Liberalization and the Balance of Payments in Selected Developing Countries

An analysis is made of the impact of the reduction of tariff and non‐tariff barriers on the trade balance and the current account of the balance of payments of 22 developing countries from Africa, Latin America, East Asia and South Asia that have undertaken important trade reforms since the mid‐1970s. The study applies dynamic panel data and time series/cross‐section analysis. The main findings are that liberalization has worsened the balance of trade and the balance of payments, because imports have increased more rapidly than exports. The adverse effect on the trade balance has been nearly 2 per cent of GDP. The impact of liberalization and other variables varies according to the region and type of trade policy regime existing.

Foreign trade regimes and the FDI–Growth Nexus: a case study of Thailand

This article examines the role of trade policy regimes in conditioning the impact of foreign direct investment (FDI) on growth performance in investment receiving (host) countries through a case study of Thailand. The methodology involves estimating a growth equation, which provides for capturing the impact of FDI interactively with economic openness on economic growth, using data for the period 1970–99. The results support the ‘Bhagwati’ hypothesis that, other things being equal, the growth impact of FDI tends to be greater under an export promotion (EP) trade regime compared to an import-substitution (IS) regime.

National Versus International Mergers and Trade Liberalization

This paper uses an endogenous merger formation approach in a concentrated international oligopoly to examine the effects of trade liberalization on the nature of merger incentives (national vs. international). The effects of unilateral trade liberalization on a country's industry structure are found to be depending on the other country's trade policy regime. If the other country practices free trade, unilateral liberalization by a country yields international mergers whereas if it practices a restrictive trade policy, national mergers arise. As trade gets bilaterally liberalized, the resulting equilibrium market structure is the one with international mergers. These results fit well with the fact that global trade liberalization has been accompanied by an increase in international merger activity. Among equilibrium market structures, international ones are found to be preferable from a welfare point of view. As a result, social and private incentives become aligned together as trade gets liberalized.

The Impact of EU-Accession on the Estonian Trade with Food Products - Partial Equilibrium Approach

The purpose of the paper is to analyse the impact of EU-accession on the Estonian food sector from the point of view of potential changes in foreign trade. Estonia has followed radical macroeconomic reforms in the 1990's and is well known by its extremely liberal trade policy including the complete absence of tariffs and quantitative restrictions. Therefore the accession to the EU means for Estonia radical change in the trade policy regime. The most affected will be trade with food products and eventually this will cause deep changes in the Estonian agriculture. Estonia has to implement EU common external tariffs against third countries and on the other hand EU food market will be opened to Estonian exporters. In addition Estonia has to implement against third countries the whole system of non-tariff trade barriers required by EU (export subsidies, tariff quotas, sanitary requirements and etc). In general the analysis presented in this paper tries to quantify the effects of trade liberalisation from EU side and growing protectionism against third countries on the Estonian trade with food products. Due to a low prices and protection level at present, many food prices are expected to rise. However, this rise in prices and the consequent increase in production and export depend on the competitiveness of in Estonian products on the markets in the present EU member states. Since January 2000 Estonia already implemented limited tariffs on food products against third countries. Implementation of partial equilibrium analyses allowed to show that trade diversion has taken place as a result of it - the import from third countries has been partly driven out by the import from the European Union and the countries Estonia has free trade agreements with. In the case of some agricultural products it can be supposed that the price increase in imports has also influenced Estonian producer and retail prices. In using of partial equilibrium model the agricultural sector is disaggregated into the dairy, meat and cereals markets. This allows incorporate into the analysis the specific characteristics of different products.